The Nominal Interest Rate Is 10

question 12

Multiple Choice

The nominal interest rate is 10%. The real interest rate is 4%. The inflation rate must be ________.

• A) −6%
• B) 4%
• C) 5.77%
• D) 14.4%

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Definitions:

AAR

Average Annual Return, represents the arithmetic mean of a series of annual returns, offering a straightforward way of understanding an investment's performance over time.

Payback

The time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.

Arbitrary Cutoff

A predetermined point or limit that does not necessarily have a logical basis, used in decision-making or analysis.

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.